Wednesday, December 12, 2012
Both averages have now moved above their declining 50 day moving averages and are above their rising 200 day moving averages. Both averages have yet to take out their September 2012 high points. Right now my best guess is that these highs will be taken out before any substantial drop begins. But the market is in a vulnerable position and this makes me particularly attentive to any negative price action going forward.
One thing which bothers me is that as of September 2012 the bull market which started from the March 2009 low point had lasted 42 months, significantly longer than a typical bull market. Another negative from a purely technical point of view is that since 2011 the Dow has traced out a nearly classic example of George Lindsay's 3 peaks and a domed house formation. The top of the current rally, whether above or below the September top, is likely to establish point 27 of the domed house. This implies that sometime over the next year the market should take out its October 2011 low point.
There are also three shorter term negatives. First, the Fed announcement today is being taken as good news. Second, the "fiscal cliff" negotiations are widely expected to be resolved by the end of the year. Market tops are often associated with positive news developments and this is a reason to be concerned about any down turn from current levels. A third technical short term negative is that the December rally has produced very clear bearish divergences in my advancing issues oscillators which you can find on my chart page.
Over the years I have learned that there are always good reasons to be bullish and good reasons to be bearish at any given point in time. Even though I am concerned about a possible top here I am going to give the market every chance to make new bull market highs first. If in the meantime the averages start trading below previous weeks' low points I will switch to the bearish side of the market.